French Premier Risks Turmoil in Budget Battle: What to Watch
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French Premier Risks Turmoil in Budget Battle: What to Watch
Samy Adghirni
5 min read
(Bloomberg) -- French Prime Minister Francois Bayrou faces a make-or-break test Monday when he plans to get a new budget approved without a parliamentary vote, a risky process that could end up toppling France’s third government in less than a year.
Bayrou said over the weekend that he would use a constitutional provision — called Article 49.3 — that allows him to skip a vote in the National Assembly and force legislation through. Use of this mechanism allows members of parliament to call a no-confidence vote, and far-left lawmakers have already said they would table such a motion.
A no-confidence vote will likely happen on Wednesday, and if a majority in the lower house support it, then President Emmanuel Macron may again be forced to find a new prime minister.
“A country like ours can’t remain without a budget,” Bayrou said in an interview with La Tribune Dimanche published Sunday. “If everything goes well, in 10 days, France will have the budgets that are crucial for the life of the nation.”
Here’s what to watch:
Government in Turmoil
France has been hit by months of political uncertainty after a snap election last summer delivered a fractured National Assembly split between three irreconcilable blocs and left Macron’s center without a clear path to a majority. The prime minister at the time, Gabriel Attal, resigned in the aftermath.
Michel Barnier, the European Union’s former Brexit negotiator, took over from Attal in September but had to contend with the same fractured political landscape. His government collapsed in December following a no-confidence vote after he tried to push a budget through using Article 49.3. He had the shortest tenure of a premier in modern French history.
To avoid the same fate as Barnier, Bayrou and his minority government must convince more lawmakers to not support a no-confidence motion.
Split Parliament
Last summer’s snap election split the National Assembly into three roughly equal factions: a left-wing alliance including the Socialists, Greens, Communists and the far-left France Unbowed; Macron’s centrist group and its allies; and Marine Le Pen’s far-right National Rally, which became the largest single party in the lower house.
Because the center became so small, the leftist alliance and the far right have enough votes between them to pass a no-confidence motion, which is how Barnier lost his job.
Bayrou is walking a tightrope and if both the Socialists and the National Rally turn on him, then his government will likely fall. The leadership of France’s Socialist Party decided on Monday not to support a no-confidence motion over the budget, according to Agence France-Presse, which cited participants in an executive committee meeting.
Budget for 2025
France is currently without a full annual budget and reliant on emergency legislation to avoid a state shutdown. The previous 2025 fiscal plan was rejected with the collapse of Barnier’s government when he tried to push €60 billion ($61.8 billion) in tax increases and spending cuts through parliament to bring the deficit down to 5% of economic output from around 6.1% in 2024.
The final shape of the 2025 budget proposal was agreed upon on Friday, when a parliamentary conference committee reached a deal on the bill. Bayrou’s administration is targeting a slightly smaller adjustment based on €50 billion of savings to get a deficit of 5.4% in 2025.
Investors will be closely assessing Bayrou’s choices after months of dumping French assets on concerns over widening deficits and political instability.
Market Reaction
Bond buyers have taken a positive outlook on the budget moves recently and view that they’re now getting paid appropriately for the risks of the political gridlock, Bloomberg reported last week.
But French assets have faced a rocky ride through the political turmoil. In 2024, French government debt delivered a loss of 0.5%, making France the only country in the region with a negative return for its sovereign debt, according to a Bloomberg index. Stocks underperformed as well, with the CAC 40 returning less than 1% versus almost 10% for the Stoxx Europe 600 Index.
French debt rallied on Friday after news of the budget deal in the conference committee, with the 10-year yield falling seven basis points to 3.20%.
That tightened the premium over Germany — a closely watched gauge of risk — by two basis points to 73 basis points. The spread has been narrowing since a recent peak of 86 basis points on Jan. 13.
Power Politics
Bayrou needs the support of the Socialists to survive, but pleasing the center-left party could come at the cost of support from a small group of center-right lawmakers who have refused tax increases or the suspension of the application of Macron’s pension overhaul.
Bayrou must also consider demands from right-wing politicians — including from Le Pen and his own interior minister Bruno Retailleau — for stricter rules to curb immigration.
In the Friday conference committee, Socialist lawmakers voted against the latest version of the budget but claimed they won a series of concessions including preserving spending for health, education and pensions. If Bayrou loses the tacit support of the Socialists, he may yet need to court Le Pen’s abstention in the no-confidence vote, something his predecessor Barnier tried and failed to achieve.
What’s Next
If Bayrou survives the no-confidence vote later this week, he is then expected to face a repeat of that sequence when he uses Article 49.3 to adopt bills in the social security chapter of the 2025 budget later in February.
If the government falls, Macron will have to pick a new prime minister. Once named, that person would have to propose a cabinet to be appointed by the president. The new government would either resume talks for the current budget to pass or would negotiate a fresh bill.
Until France can adopt a full budget for this year, it will be reliant on emergency stopgap legislation to avoid a shutdown.
--With assistance from Ania Nussbaum and William Horobin.
(Updates with Socialist leadership intentions in 11th paragraph.)
